The fallout from the global financial crisis is only just beginning to be felt...
THE IMPLICATIONS of the global financial crisis are, at long last, beginning to filter through to the general public, writes Lawrence Williams at MineWeb.
And the move to dump cash and other savings in favor of gold and silver – notably in the easily accessible and sellable coin form – is gathering momentum and is becoming a major driver of the precious metals markets.
We have long known that the rising, and rapidly expanding, middle classes in Asia have an almost inbuilt propensity to keep a significant proportion of their savings in gold. The less costly silver is now beginning to come into the equation too.
This has been emphasized recently with the news that the people's Bank of China has already had to virtually more than double its minting of its gold and silver Panda series of coins, despite the previous quota for this year itself already being double last year's with the populace Buying Gold and silver as a hedge against the onset of inflation there.
Now we hear that the Perth Mint in Australia has been selling record numbers of Silver Coins so far this year and although we don't have figures yet, gold coin sales there are also said to be at record numbers.
In the US, the US Mint has been reporting record sales levels of its gold and Silver Coins, while we hear that, not surprisingly, the Greeks are flocking to Buy Gold and silver in the midst of their financial crisis as their trust in banks has virtually disappeared.
Indeed it is this last factor which really should be in the mindset of anyone who is looking to wealth protection in the current economic crisis, wherever they may be located. The general consensus is that there will inevitably be a Greek default, if not next week, when parliament has to vote on the hugely unpopular austerity measures, but before long as even with a temporary EU and IMF bailout, the figures do not suggest that a default can ultimately be avoided.
French and German banks in particular are hugely directly vulnerable to a Greek default, but it is the indirect exposure that could be truly frightening for the whole of western society. As was the case with Lehmann Brothers the tentacles of a major bank collapse spread globally – and the Greek situation is far worse than Lehmann.
The other knock-on effect of a Greek default is that those banks still left in business will be jacking interest rates to the other PIIGS economies sky high in fear that they will default as well – which of course in itself could drive them to default as there is then no way they could service their debts. In the dog-eat-dog world of current finance it is difficult to see sufficient co-operation between the banks to avert this – no bank will trust another not to go down so interbank lending and co-operation will die almost overnight.
Just as the European banking sector proved hugely vulnerable to the US subprime crisis, so in this case would the US banks be to a Eurozone financial crisis of even bigger proportions. The dominoes that could fall following a Greek default include a number of countries, lots of smaller banks, some major ones.
The carnage could be horrendous, virtually wiping out many people's savings across the whole of the Western world as banks collapse, housing values plummet, stock markets crumble etc.: The Great Depression 2 – but even worse this time.
We are already seeing the impact in Greece in particular. The populace is already out on the streets vigorously protesting the current austerity measures – and the new proposals on which any kind of bailout depends are even more stringent.
This is a pattern we may see across the whole of Europe – and it could well filter through to the US too. The UK's unions are already promising the nearest thing yet to another general strike with proposed co-ordinated action this summer. As in the so-called Arab Spring the natural outcome is blood on the streets as governments of whatever persuasion fight to maintain control.
And the US public has still not really come to grips with its own dire financial situation. Quite apart from the enormous federal deficit, States like California and Illinois are themselves virtually bankrupt – and they have far bigger economies than Greece.
It could even be the death of Capitalism. Ironically nations like Russia and China may be far more protected from this kind of fallout than the rest of Europe and North America. The perception of pursuit of wealth for wealth's sake and the greed of the financial elite could create a groundswell of public opinion and action beyond control.
Bankers, hedge fund managers, stockbrokers, the perceived financial class could be targeted individually – it may be safer for them to stay at home barricading themselves in their mansions.
Now this painting of a doomsday scenario is a warning to investors and, perhaps, politicians everywhere. Hopefully it won't happen – at least not to the extent suggested above – but one can't help but think it is probably as well to keep a proportion of one's savings in precious metals as the Greek public is doing, as the Chinese are doing, as the Indians are doing, as the Arab world is doing, as the Australians seem to be beginning to do, and as the Germans and Austrians and some Americans are doing.
In the immortal words of Yogi Berra "It ain't over 'til it's over" – and it certainly ain't over yet.